For the 2012-2013 financial year the tax-free threshold has more than tripled to $18,200
Australia’s progressive tax code is divided into five different income brackets, each with its own tax rate. You can see the brackets and rates for the 2012-2013 financial year here.
The tax rate of the lowest income bracket, that which falls between taxable incomes of $0 and $18,200, has a tax rate of 0%.
This means that you only pay tax on the income that falls above this lowest bracket. If all of your income is within this first bracket, you pay no tax at all. And even if your total income falls into a higher bracket, you still pay no tax on the first $18,200 of your income.
When you factor in the Low Income Tax Offset (LITO), you can earn up to $20,542 without paying any tax.
The $18,200 upper limit of the lowest bracket is what’s known as the tax-free threshold, because the first $18,200 of your income is not taxed.
The new 2012-2013 tax-free threshold of $18,200 is more than triple last year’s 2011-2012 tax-free threshold of $6,000. The increase, announced by the Gillard Government on 10 July 2011, is part of the Clean Energy Future package that brought the carbon tax to Australia.
Thanks to these changes up to million low-income earners will not have to lodge a tax return for the 2012-2013 financial year.
How to Claim 2012-2013 tax-free threshold Australia
When you claim the tax-free threshold, you reduce the amount of tax withheld from your wages over the course of the year. In terms of PAYG withholding, claiming the tax-free threshold can amount to an extra
- $350 per week
- $700 per fortnight
- $1,517 per month
If you are an Australian resident for tax purposes, you must let your payer (including Centrelink) know that you wish to claim the tax-free threshold by marking “Yes” when you fill out your Tax file number declaration. If you have more than one payer, it’s generally best to claim the tax-free threshold from the one that pays you the most.
Not everyone gets to claim the full tax-free threshold of $18,200, including those who
- entered Australia permanently during the year
- left Australia permanently during the year, and
- are not an Australian resident for tax purposes
For this financial year, part-year residents can claim a tax-free threshold of at least $13,464. The remaining $4,736 is then pro-rated, depending on how many months out of the financial year they were a resident for tax purposes.
The tax-free threshold is just one of the many benefits you can take advantage of when you lodge your return. Take advantage of E-Lodge to make sure you maximise your refund.
Photo via adesigna on Flickr.